Finally, Volkswagen sees the logic of an IPO

If you wanted to design a car company to fetch a princely valuation on the capital markets, it would probably look much like Porsche AG.
Like Ferrari NV, Porsche has excellent profit margins and a reputation of sporting and luxury heritage. Plus, it has an impressive electric-vehicle strategy to challenge Tesla Inc — the Porsche Taycan already outsells the 911. As a standalone company, Porsche could be worth 80 billion euros ($91 billion).
This is why almost everyone who follows parent company Volkswagen AG have long argued that the best thing it could do is list Porsche separately. After all, VW’s entire market capitalisation barely exceeds 100 billion euros.
And by jove, it finally looks like it’s going to happen! VW confirmed advanced discussions with the Porsche and the Piech family holding company regarding a potential initial public offering of the Porsche car business.
With the threat of war in Ukraine and interest rate hikes roiling financial markets, this is hardly an ideal time to list any kind of business. Important details still require straightening out, and there’s no guarantee the transaction will reach the finish line. Yet the fact that we’ve gotten this far is a minor miracle.
Institutional investors have very little influence at VW. The Porsche/Piech families, the state of Lower Saxony and trade unions all calls the shots, and unfortunately they rarely agree. But having collected an impressive stable of brands over the years, their default position is not to sell them.
Yet even the dinosaurs in VW’s boardroom appear to have realised the status quo isn’t tenable. In the coming decade, VW must completely overhaul its factories and stop relying on combustion engines. With its lowly valuation, it has one hand tied behind its back. Tesla comes with none of the same baggage and is thus is valued at almost $900 billion. Selling stock gave Tesla funds to build a German factory in VW’s backyard.
Slow-moving corporate Germany realises it must change. Daimler renamed itself as the Mercedes-Benz Group and spun off its trucks business last year, for example. Beyond the car sector, Siemens has shown the way by separately listing several units. Auto-parts supplier Continental AG could be next for the break-up treatment.
Listing Porsche is the most consequential step VW can take to unlock its conglomerate discount. The current set-up doesn’t allow for separating VW’s combustion and electric activities because they’re so intertwined at a brand level. It’s not clear why Porsche and VW’s power brokers favour an IPO rather than a much simpler spin-off. If, as has been reported in the German press, the Porsche and Piech families intend to sell some of their VW shares to purchase a larger stake in Porsche AG (their pride and joy), this could create some interesting conflicts of interest.

—Bloomberg